The Huawei Wars and the 5G Revolution in the Gulf

This essay is part of the series “All About China”—a journey into the history and diverse culture of China through essays that shed light on the lasting imprint of China’s past encounters with the Islamic world as well as an exploration of the increasingly vibrant and complex dynamics of contemporary Sino-Middle Eastern relations. Read more ...

The fifth generation of mobile phone networks (5G) is poised to become a key enabler of the digitalization of economies and societies. Digital transformation is at the heart of GCC nations’ ambitions to accelerate economic diversification, deliver public services more effectively and efficiently, and promote sustainable growth. The recent launch of 5G networks in Qatar, Saudi Arabia, and the United Arab Emirates (UAE) constitutes the leading edge of the next stage in the region’s mobile revolution. Mobile network operators (MNOs)[1] in these and the other GCC states (Bahrain, Kuwait, and Oman) are, or soon will be, among the first in the world to deploy 5G networks.

The combination of proactive government support and the formation of business alliances with global telecom vendors has contributed to the region’s 5G ecosystem developing faster than many had expected. GCC ambitions to accelerate the large-scale deployment of 5G dovetail with those of China’s hi-tech giant Huawei, which is competing for market share in infrastructure and smartphones. However, the US push to stymie Huawei’s efforts to expand the reach of its networking technologies has emerged as a potential stumbling block to more extensive ties between that company and GCC wireless carriers and customers.

5G — What's All the Fuss?

Data is the vital commodity of the information economy. The fifth generation of mobile phone networks (5G) promises to boost the speed and enhance the quality of data flow and thereby serve as the “central nervous system of the 21st-century economy.”[2]

The 5G era is about to arrive, and technically already has. The transition to 5G networks will profoundly affect the way individual users and businesses interact with technology. This next big leap in wireless technology is projected to yield three main benefits: broadband-like speed, radically decreased delays in network response (latency), and high capacity. In turn, these advances will not only allow the avid viewer to download a movie in seconds but will also enable the development of new technologies and applications.

The deployment of 5G is expected to facilitate improvements in augmented and virtual reality (AR/VR) and cloud gaming, to accelerate the introduction of smart city features such as electric meters and commercial security cameras, and to serve as the backbone of and catalyst for internet of things (IoT) applications. Indeed, a multitude of use cases are likely to emerge from 5G, ranging from remote surgeries to autonomous vehicles.

The Gulf States and the Advent of the 5G Era in the Middle East

The Middle East and North Africa (MENA) remains the second least mobile services penetrated region in the world ahead of Sub-Saharan Africa (45%).[3] However, between 2017 and 2025, the MENA region is likely to see the fastest subscriber growth rate of any region except Sub-Saharan Africa.[4] Mobile broadband usage and smartphone adoption in the region is highest in advanced information and communication technology (ICT) Gulf markets. It is in these very markets that governments, as part of their attempt to move away from oil-based economies, are investing heavily in upgrading network infrastructure and undertaking smart city projects and digital initiatives. GCC leaders clearly recognize that innovative technologies such as 5G have the potential to catalyze a “digital transformation” that can support their respective national development visions / agendas and significantly boost GDP.[5] An October 2018 white paper by the consultancy Analysis Mason estimates that 5G could generate cumulative new revenue opportunity of $273 billion over ten years.[6]

Telecoms operators in the GCC countries are racing initially to provide enhanced mobile broadband services, with applications and services for enterprises to be introduced later. Eager to harness 5G’s potential and apply it across multiple sectors, they have been moving rapidly from trials to early commercialization.[7] On Qatar National Day in 2017, Ooredoo completed pre-standardized trials of 5G service. Several months later, Saudi Arabia established the National 5G Task Force to set targets, monitor progress, and examine issues related to 5G development. In early May 2018, the Saudi Communications and Information Technology Commission (CITC) began issuing test-and-trial licenses. A few weeks later, Al Khobar became the first city in the region to test a 5G network.[8] Between May and June 2018, Etisalat (UAE), Ooredoo (Qatar), STC (Saudi Arabia) and Zain (Kuwait) all launched 5G in their respective home markets.

This past June witnessed another string of new developments. The Saudi Telecom Company (STC) Group announced the official launching of 5G wireless network service, coinciding with the commercial launch of 5G service by VIVA Kuwait (a subsidiary of STC).[9] Saudi Arabian Airlines (Saudia) operated its inaugural flight to Neom Bay Airport, the first airport in the region to use 5G wireless network service.[10] Batelco became the first company to launch commercial 5G in Bahrain,[11] followed soon after by VIVA Bahrain, which launched 5G with home broadband offerings.[12]

As 5G networks have started to come online, 5G smartphones have also begun to hit the market. Etisalat recently announced that its customers can purchase a ZTE Axon 10 Pro — a 5G-enabled smartphone — on flexible smart pay plans from the Dubai Mall and the Marina Mall in Abu Dhabi. At about the same time, Emirates Integrated Telecommunications Company, known as du, announced that it would be providing free handsets to a select number of its customers and expected soon to be able to make available Huawei’s Mate x5G smartphone.[13]

Meanwhile, GCC telecoms operators have continued to build the infrastructure needed for early deployment of 5G commercial services. Ooredoo has installed over 85 5G network towers (of a planned 100) in and around Doha. Saudi Arabia already has more than 1,000 towers capable of supporting 5G; and UAE has its sights set on reaching that milestone by year’s end.

Networks of Collaboration

The fast-evolving and increasingly complex GCC 5G ecosystem is marked not only by intense competition but also by collaboration. To make the leap to 5G, wireless carriers and their service providers must deploy new telecom infrastructure, including many miles of new fiber, chips, modems, antennas, radio access platforms, and phones. To meet these needs, mobile network operators in the region are partnering with a wide variety of stakeholders and with each other.

In August 2016, du established the 5G Innovation Gate (U5GIG), a consortium of technical / academic experts and global telecom vendors designed “to bridge the gap between telecom industry and academia in UAE…”[14] In June, Batelco (Bahrain) and du (UAE) established a joint venture to provide connectivity and data services centers across the region.[15] Rivals du and Etisalat (UAE), along with Omantel (Oman), Ooredoo (Qatar), STC and Zain (Saudi Arabia) are collaborating on smart city initiatives. GCC mobile network operators are also forging business alliances with foreign companies, notably Ericsson, Nokia, and Huawei — world leaders in telecoms equipment which are vying to sell 5G-ready products and to provide professional services.[16]

The Chinese technology giant Huawei[17] which has been active in the region’s telecom space for nearly two decades, has a strong foothold in the Gulf market. During the Mobile World Congress in Barcelona this past February, Huawei signed an “Aspiration Project” contract with Saudi Telecom Company (STC) on wireless network modernization and 5G network construction.[18] On the sidelines of the same venue, Huawei signed a nationwide 5G service launch MoU with VIVA Bahrain, the Kingdom’s leading telecoms provider and a subsidiary of Saudi Arabia’s STC.[19] The next month, at the plenary session of the China-Saudi Investment Forum held in March, Huawei’s Vice President, Mark Xue, pledged that the company will continue to invest in training Saudi ICT professionals and in developing the latest ICT infrastructure to support the country’s digital transformation.[20] Yet, although Gulf operators have established strategic alliances with multiple partners,[21] the ties they have forged with Huawei — technically, a private company yet with complex and opaque links to the Chinese Communist Party — have been the source of greatest scrutiny and controversy.

The Tangled Roots of the Huawei Wars

The “Huawei wars” broke into full public view when on December 1, 2018, at the request of the US government, Meng Wanzhou — Huawei’s CFO and daughter of its founder — was arrested in Canada on allegations she participated in a conspiracy to defraud banks in connection with Iran sanctions violations.[22] Since then, she has been detained in Vancouver (though released on bail) while her legal team continues to fight extradition to the United States.[23]

However, the Huawei wars have deeper, tangled roots and more far-reaching implications than this one isolated, albeit noteworthy incident.[24] The clash between Washington and Huawei, the world’s largest telecoms company, is occurring against the backdrop of the intensification of global strategic competition and amidst an acrimonious tariff war between the United States and China.

Members of Congress on both sides of the aisle for well over a decade and the Trump administration since coming to office have sought to keep Huawei (and ZTE) out of the American market.[25] A 2012 report by the House Intelligence Committee stated that “… the risks associated with Huawei’s and ZTE’s provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests.”[26] US officials have long worried that the Communist Party could use Huawei both as a weapon to dominate cutting-edge technology and as a proxy for the Chinese state security apparatus.[27]

Indeed, the US-Huawei clash is occurring in the context of China’s stated objective to lead the world in advanced technologies and the progress that the country’s top hi-tech champions have been making toward that end. Huawei, ZTE, and challengers such as Nokia, Ericsson, Cisco, Ciena, and Samsung together accounted for 80% of worldwide service equipment provider market revenue in 2018.[28] An April 2018 report by the wireless industry group CTIA (based on research commissioned from Analysys Mason and Recon Analytics) found that China holds a narrow lead in the global race to 5G.[29] Of the four companies that dominate the global market for the core technologies needed for 5G networks, two are Chinese (Huawei and ZTE) — but none are American.

US officials’ concerns stem not just from the rapid gains Chinese companies have made in their pursuit of market dominance, but also from some of the methods they have employed to achieve it. A memo reportedly produced by a senior US National Security Council official and leaked by Axios in January 2018 states: “Huawei has used market distorting pricing and preferential pricing to dominate the global market for telecommunications infrastructure.”[30] An April 2019 report by the Defense Innovation Board underscores what’s at stake: “The leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector.”[31]

While on the campaign trail and since entering the White House, President Trump has advanced the argument that US national security depends on the nation’s economic security.[32] In fact, the maxim that “economic security is national security” has arguably served as the guiding principle of his “America First” agenda.[33] Over the past year, the Trump administration, invoking national security, has mounted an all-out offensive against Huawei. US officials have lobbied allies to reject Huawei’s 5G technology and to help slow its expansion into third markets.[34] Tensions between the administration and Huawei escalated in May, as trade talks between Washington and Beijing broke down. On May 15, President Trump signed an executive order effectively barring US firms from purchasing or using Huawei telecom gear.[35] In a separate action, the Commerce Department’s Bureau of Industry and Security (BIS) added Huawei and 68 of the company’s non-US affiliates to its “Entity List,” a designation that imposes an export license requirement on all exports, reexports, and transfers of items.[36]

The Trump-Xi Trade War Truce and the Huawei Reprieve

At a news conference following the G-20 summit in Osaka on June 29, President Trump appeared to ease the ban on selling products to Huawei as part of a trade truce,[37] a move that administration officials later confirmed and sought to clarify.[38] The surprise announcement triggered a significant political backlash in the US Congress, where even some of the president’s staunchest allies raised concerns that the reversal could damage American credibility and undercut the administration’s own campaign to persuade allies to forego the use of Huawei equipment in their deployment of 5G technology.[39]

Well before this latest policy shift by the Trump administration, US efforts to prevent countries from using Huawei telecoms equipment in their next-generation wireless networks had been met with stiff resistance.[40] European allies had pushed back on the idea that they should impose a blanket ban on Huawei equipment.[41] Meanwhile, customers continued to line up to buy 5G network technology from Huawei. That is still the case in the Gulf, where the US attempt to blacklist Huawei has not gotten much traction.

Like their European counterparts, GCC governments and wireless carriers have adopted the pragmatic view that precautionary measures can be taken to protect against the malign use of 5G equipment. According to Aisha bin Bishr, director general of Smart Dubai, the government body leading the emirate’s artificial intelligence (AI) efforts: “You cannot stop implementing technologies just because of some negative flags flagged externally — you need to take that risk and calculate it, be ready for anything to happen during that journey, and we work very closely with our chief security officers.”[42] Similarly, in an interview with Kyodo News, Saudi technology minister Abdullah bin Amer al-Swaha stated that he sees no problem using Huawei products, provided that the company complies with technical, regulatory, and cybersecurity requirements.[43] As of July 11, Huawei’s Mate 20 X (5G), the company’s first commercial 5G-enabled smartphone became available for pre-order in UAE.[44] Thus, even in the unusual circumstances of the escalating US offensive against Huawei, by all appearances it is business as usual in the Gulf — at least for the time being.

Conclusion

The GCC states have been moving aggressively — and successfully — to be among the first countries to launch 5G nationwide commercial services. Many operators have already deployed or announced plans to deploy large-scale networks, in collaboration with foreign vendors, notably China’s Huawei. However, the United States has sought to dissuade allies and partners from using Huawei equipment in 5G mobile networks, citing serious security concerns.

Although US officials have never presented publicly evidence that Huawei has deliberately installed software backdoors or vulnerabilities in its equipment, they nonetheless have valid concerns. The geopolitical objectives of the Chinese state and business aims of Huawei are intertwined. Chinese authorities have been tightening their grip on business, including firms such as Huawei that are not state entities.[45] For years, Huawei has been dogged by accusations of infringing on patented technology.[46] The fact that Chinese cyberintrusions of American companies and government institutions have occurred repeatedly[47] has, if anything, amplified US officials’ misgivings about Huawei.

Nevertheless, in navigating the standoff between the Trump administration and Huawei/China, GCC countries appear to have concluded — as have a number of European countries[48] — that the benefits of fast, inexpensive 5G outweigh the security risks of using Huawei products and that such risks that do exist, or that might arise, can be mitigated.

Meanwhile, though, Washington’s battle against Huawei, like the US-China trade war with which it is entangled, remains clouded by uncertainty. The 90-day reprieve that runs until August 19 provides some relief for American semiconductor and chipmaking firms, which lobbied strongly against broad restrictions,[49] and for countries that rely on Huawei equipment. But not necessarily all US companies will be able to resume their relationship with Huawei, which will remain on the BIS Entity List. According to US Commerce Secretary Wilbur Ross, “winning licenses would require overcoming a presumption of denial, and said the scope of items requiring licenses would not change.”[50] The possibility that restrictions could be re-imposed if trade talks falter has added to the uncertainty and confusion.

Huawei, which has taken steps to hedge its reliance on the United States, remains highly dependent on American suppliers for semiconductors and software. In all likelihood, strong US opposition to the use of Huawei’s equipment in 5G networks will persist. The continuation of US sanctions against Huawei could disrupt supply chains, producing a rippling effect globally that might delay the rollout of 5G in the GCC countries just as the process is accelerating. In the longer term, recently warned The Economist, the Huawei wars could lead to the “bifurcation of global markets into two incompatible 5G camps.”[51] Were this latter scenario to eventuate, into which camp would America’s Gulf allies be likely to fall?

[1] A mobile network operator (MNO) – also known as wireless service provider, wireless carrier, cellular company, or mobile network carrier – is a telecoms entity that provides services for mobile phone subscribers.

[21] For example, Saudi Telecom Company (STC) signed deals deploy 5G and develop services with Nokia and Ericsson, and not just with Huawei. See “STC Agrees with Ericsson, Huawei, Nokia to Deploy 5G Network,” Asharq Al-Awsat, February 28, 2019, https://aawsat.com/english/home/article/1611961/stc-agrees-ericsson-huawei-nokia-deploy-5g-network.

[22] For an overview of the 13-count indictment, see https://www.justice.gov/usao-edny/pr/chinese-telecommunications-conglomerate-huawei-and-huawei-cfo-wanzhou-meng-charged.

[23] Dan Bilefsky, “Huawei Executive Gets New Bail Term: Staying in a $16 Million Home,” New York Times, May 8, 2019, https://www.nytimes.com/2019/05/08/world/canada/huawei-meng-wanzhou-extradition.html; Robert Gillies, “Lawyers for Huawei CFO ask Canadian justice minister for help,” AP News, June 24, 2019, https://www.apnews.com/d0fb7dcb528e4045b8fbe74928c94f88.

[24] Eric Levitz, “Trump’s Huawei Ban Is a Bigger Deal Than His Trade War,” New York Magazine, May 17, 2019, http://nymag.com/intelligencer/2019/05/trumps-huawei-ban-is-a-bigger-deal-than-his-trade-war.html.

[26] US House of Representatives Permanent Select Committee on Intelligence, “Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE,” October 8, 2012, vi, https://fas.org/irp/congress/2012_rpt/huawei.

[30] Jonathan Swab, David McCabe, Ina Fried, and Kim Hart, “Scoop: Trump team considers nationalizing 5G network,” Axios, January 29, 2018, https://www.axios.com/trump-team-debates-nationalizing-5g-network-f1e92a49-60f2-4e3e-acd4-f3eb03d910ff.html. For the text of the memo, see “Secure 5G: The Eisenhower National Highway System for the Information Age,” 2, https://assets.documentcloud.org/documents/4361020/Secure-5g.

[32] Ana Swanson and Paul Mozur, “Trump Mixes Economic and National Security, Plunging the U.S. Into Multiple Fights,” New York Times, June 8, 2019, https://www.nytimes.com/2019/06/08/business/trump-economy-national-security.html?action=click&module=Top%20Stories&pgtype=Homepage.

[36] US Department of Commerce Bureau of Industry and Security (BIS), “Addition of Entities to the Entity List,” May 21, 2019, https://www.federalregister.gov/documents/2019/05/21/2019-10616/addition-of-entities-to-the-entity-list.

[38] See US Department of Commerce, “Remarks by U.S. Commerce Secretary Wilbur L. Ross at the Bureau of Industry and Security Annual Conference on Export Controls and Security,” July 9, 2019, https://www.commerce.gov/news/speeches/2019/07/remarks-us-commerce-secretary-wilbur-l-ross-bureau-industry-and-security.

[44] “Pre-orders open in UAE for Huawei’s 5G smartphone,” Gulf News, July 7, 2019, https://gulfnews.com/technology/consumer-electronics/pre-orders-open-in-uae-for-huaweis-5g-smartphone-1.65084275. See also Alexander Cornwell, “UAE's du says U.S. ban on Huawei not an issue for 5G network,” Reuters, July 24, 2019, https://www.reuters.com/article/us-huawei-security-du/uaes-du-says-u-s-ban-on-huawei-not-an-issue-for-5g-network-idUSKCN1UJ13I.

[45] See China’s 2017 National Intelligence Law, which obliges “all organizations and citizens” to “support, assist, and cooperate with state intelligence work”: http://cs.brown.edu/courses/csci1800/sources/2017_PRC_NationalIntelligenceLaw. See also Murray Scot Tanner, “Beijing’s New Intelligence Law: From Defense to Offense,” Lawfare, July 20, 2017, https://www.lawfareblog.com/beijings-new-national-intelligence-law-defense-offense.